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The optimized problem of the 1st step can be classified into linear and non-linear
depending upon on nature of variables. Optimization problem has three following
aspects:
An objective function to maximize or minimize.
A set of variables which affect the value of the objective function.
A set of uncontrollable factors referred as parameters.
The solution of optimized problem satisfying all parameters and constraints is
referred as feasible solution. The objective of an optimization process is to value of
variables, which minimize or maximize objective giving out an optimal solution.
Linear Programming
Linear programming is a mathematical procedure of determining linear allocation of
business variables. For constructing linear program following factors are essential:
The objective function needs to be linear.
The objective must be to either maximize or minimize a linear function.
The constraints in the program should also be linear.
In formulating a linear program certain variables are integer in nature, such as
function with integer variable is known as integer programming.
Decision Tree
In a certain decision-making process, probability plays an important role. On the
decision model based upon probability is decision trees.
Scenario modeling
Business environment is always unpredictable and can throw up unusual situation
more than often. Thus, organizations find themselves in the middle of dynamic
environment. Here model and methods like sensitivity analysis, stability analysis,
what-if analysis, scenario modeling, etc. is utilized.
Scenario Analysis: this model assumes a different scenario a business may find
itself with certain value of parameters.
Worst Case Analysis: this model assumes an extreme case scenario in computing
different variables.
Monte-Carlo Model: this model assumes uncertainty through statistical distribution.
Theory of Constraints
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